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on International Finance |
| By: | Zhengyang Jiang |
| Abstract: | I propose a model of the reserve currency paradigm that centers on liquidity demand for safe assets. In global recessions, the demand for U.S. safe assets increases and raises their convenience yields, giving rise to stronger dollar and countercyclical seigniorage revenues. The seigniorage revenues raise the U.S. wealth and consumption shares in recessions, despite the U.S. suffering portfolio losses from external positions. This asset demand channel also connects exchange rates to bond holdings, which provides new perspectives on exchange rate disconnect and the exchange rate-capital flow relationship. Under this safe-asset view, exorbitant privilege does not require exorbitant duty. |
| Keywords: | exorbitant privilege, reserve assets, international monetary system, capital flows |
| JEL: | E44 F32 G15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11279 |
| By: | Alex Li |
| Abstract: | Predicting volatility in financial markets, including stocks, index ETFs, foreign exchange, and cryptocurrencies, remains a challenging task due to the inherent complexity and non-linear dynamics of these time series. In this study, I apply TimeMixer, a state-of-the-art time series forecasting model, to predict the volatility of global financial assets. TimeMixer utilizes a multiscale-mixing approach that effectively captures both short-term and long-term temporal patterns by analyzing data across different scales. My empirical results reveal that while TimeMixer performs exceptionally well in short-term volatility forecasting, its accuracy diminishes for longer-term predictions, particularly in highly volatile markets. These findings highlight TimeMixer's strength in capturing short-term volatility, making it highly suitable for practical applications in financial risk management, where precise short-term forecasts are critical. However, the model's limitations in long-term forecasting point to potential areas for further refinement. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.09062 |
| By: | Hugo Spring-Ragain (HEIP) |
| Abstract: | This article examines how emerging economies use countercyclical monetary policies to manage economic crises and fluctuations in dominant currencies, such as the US dollar and the euro. Global economic cycles are marked by phases of expansion and recession, often exacerbated by major financial crises. These crises, such as those of 1997, 2008 and the disruption caused by the COVID-19 pandemic, have a particular impact on emerging economies due to their heightened vulnerability to foreign capital flows and exports.Counter-cyclical monetary policies, including interest rate adjustments, foreign exchange interventions and capital controls, are essential to stabilize these economies. These measures aim to mitigate the effects of economic shocks, maintain price stability and promote sustainable growth. This article presents a theoretical analysis of economic cycles and financial crises, highlighting the role of dominant currencies in global economic stability. Currencies such as the dollar and the euro strongly influence emerging economies, notably through exchange rate variations and international capital movements. Analysis of the monetary strategies of emerging economies, through case studies of Brazil, India and Nigeria, reveals how these countries use tools such as interest rates, foreign exchange interventions and capital controls to manage the impacts of crises and fluctuations in dominant currencies. The article also highlights the challenges and limitations faced by these countries, including structural and institutional constraints and the reactions of international financial markets.Finally, an econometric analysis using a Vector AutoRegression (VAR) model illustrates the impact of monetary policies on key economic variables, such as GDP, interest rates, inflation and exchange rates. The results show that emerging economies, although sensitive to external shocks, can adjust their policies to stabilize economic growth in the medium and long term. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.23002 |
| By: | R T Ferreira, Thiago (Federal Reserve Board); A Ostry, Daniel (Bank of England); Rogers, John (Fudan University) |
| Abstract: | We re-examine how financial frictions shape the transmission of monetary policy using firms’ excess bond premia (EBPs), the risk premium component of credit spreads. While monetary policy easing shocks compress credit spreads more for higher-EBP (riskier) firms, lower-EBP firms’ investment responds more. Further, credit supply shocks replicate monetary policy’s heterogeneous effects, whereas credit demand shocks elicit homogeneous firm responses. A model with financial frictions in which lower-EBP firms have flatter marginal benefit curves for capital rationalises firms’ price and quantity reactions to these three shocks. In contrast, previously examined channels, while complementary, are inconsistent with our more comprehensive set of empirical moments. |
| Keywords: | Monetary policy; investment; credit spreads; excess bond premium; firm heterogeneity; credit supply; risk premium. |
| JEL: | E22 E44 E50 |
| Date: | 2024–09–06 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1093 |